Monday, June 09, 2008

Anne M. Mulcahy runs a $17 billion company. She makes decisions that affect more than 7,600 workers in the Rochester area. And she gets paid a handsome sum to do all that.

The chief executive officer of Xerox Corp. made $14.6 million in 2007, according to a Democrat and Chronicle analysis of executive compensation at publicly traded companies with operations in the area.

Compensation includes not only cash in the form of salary and bonuses but also the value of perks and the estimated value of stock options.

Mulcahy was the most highly compensated CEO among those whose companies either have their headquarters in the Rochester area or have large work forces here.

But some other CEOs, of companies based elsewhere in the country and with relatively small Rochester-area staffs, did even better. For example, Exxon Mobil Corp. CEO Rex W. Tillerson had total compensation of $27.2 million in 2007, according to the analysis.

At Eastman Kodak Co., the area's largest publicly traded employer with 9,200 local workers, CEO Antonio M. Perez received $11.7 million in 2007.

In all, 51 of 72 executives in the Democrat and Chronicle analysis had compensation packages in excess of $1 million in 2007. The compensation data are available only for companies whose stock is sold to the public. The data come from documents filed annually with the U.S. Securities and Exchange Commission.

Typically, stock options or performance-based incentives make up much of a package. Sometimes, those awards wind up not having any value if the company's performance lags.

And for every Xerox, Kodak or Corning Inc., where the top executives all commanded at least $10 million in 2007, there is a Document Security Systems Inc. or First Niagara Financial Group or Performance Technologies Inc., at which the CEOs made less than $1 million.

Executive pay is a hot-button issue across the country because, studies have shown, the gap between what bosses make and what rank-and-file workers make is much larger than it used to be.

From the end of World War II through the 1970s, CEO pay grew gradually, according to a 2005 study by Harvard University and the Federal Reserve Board.

But between 1980 and 2000, the ratio of CEO-to-worker pay increased more than tenfold, from 42-to-1 to 525-to-1, according to a 2007 study by the liberal Institute for Policy Studies in Washington, D.C., and United for a Fair Economy, a Boston-based group that tracks CEO compensation.

Since 2000, the gap has narrowed slightly, the study found.

Consulting firm Mercer LLC's annual survey found that, on average, CEO compensation actually declined in 2007, with executives at the largest companies taking the biggest hits as financial performance also declined.

Unintended effect

New SEC requirements in the 1990s forcing companies to detail what they pay executives were intended to slow the growth rate of compensation by shining more light on the subject, said Eric Jackson, president of Florida-based activist investment firm Ironfire Capital. Instead, that openness might have helped push the growth. "The unintended effect was that it sort of became this constant escalating match of who is going to be paid the most," Jackson said.

Prompted by shareholders, a small number of companies this year granted those investors a say in executive pay packages. Insurer Aflac Inc. of Columbus, Ga., last month became the first major American company to give shareholders a vote on compensation.

Apple Inc. in Cupertino, Calif., and printer company Lexmark International Inc. in Lexington, Ky., gave investors an advisory say, though not a direct vote.

Similar proposals were shot down this year at a number of companies, such as Citigroup Inc. and Morgan Stanley, both New York City-based financial giants.

The House of Representatives in 2007 passed the Shareholder Vote on Executive Compensation Act, which would require that company stockholders get an advisory vote on executive compensation. Sens. Barack Obama, D-Ill., and Hillary Clinton, D-N.Y., have introduced similar legislation in the Senate in the past year.

But given what Xerox's peers pay their executives, Bonadonna said, "I don't think (Xerox) is out of whack. I don't have an issue with it. If they were attacking our wages, it'd be a different story."

Xerox retirees upset about the cuts the company has made in health care benefits get particularly fired up each spring when Xerox issues a proxy statement that details, among other things, what the company's top bosses made, said Dave Ferren, vice chairman of the Penfield-based Association of Retired Xerox Employees.

Executives are paid so much because they know a lot and do a lot, said James A. Brickley, Gleason Professor of Business Administration at the University of Rochester and an expert on corporate governance.

"I'm sure you can find some abuses in CEO pay," Brickley said. But running a large company is such a specialized job, he said, that handsome pay packages are necessary to attract and retain top talent.

Pointing to privately held companies that have hired CEOs from publicly traded companies, such as General Electric Co. executive David Calhoun leaving in 2006 to head Dutch market research firm VNU for a reported $100 million, Brickley said the private firms with hands-on ownership "are not going to go out and overpay a CEO's salary."

Compensation for heads of similar private and public manufacturing companies, for example, will usually be comparable, said Peter Oppermann, senior executive compensation consultant with Mercer LLC in New York City.

Oppermann said the increased public attention paid to executive compensation hasn't curbed the growth of pay packages but "has ensured that companies have paid for performance."

Brickley added: "There's a lot of focus and argument over CEO pay, but in reality that represents an incredibly small fraction of the overall value of these companies. ... So the pay is over the market rate. Is that as big an issue as not getting the right person in there?"

Set by boards

Executive pay can be a touchy subject for many companies. Major employers including Xerox and Constellation Brands Inc. declined to discuss the issue beyond pointing to their proxy statements.

Ultimately, executive compensation is set by companies' boards of directors. And typically those boards adopt packages that are designed to attract and motivate qualified executives and that are based on an assessment of corporate and individual performance. Companies also look to peers to help determine what they should be paying.

Many of those highly paid top executives are among a company's major shareholders. Patrick White and Peter Ettinger, CEO and president, respectively, of Document Security Systems, combined own more than 8 percent of the Rochester-based company.

At Perinton-based telecommunications company PAETEC Holding Corp., CEO Arunas Chesonis owns 8.3 million shares, or almost 6 percent of the total. And Kodak's Perez owns 1.2 million shares, though that amounts to less than 0.5 percent of the common stock, and has access to 1 million more through options.

Compared to companies around the globe, UR's Brickley said, American CEOs are more highly paid. But that can make for an apples-and-oranges comparison because "some (foreign) companies ... deal in less complex environments."

And as markets around the globe become more integrated, Brickley said, "the pay packages are tending to converge more."

Anne M. Mulcahy runs a $17 billion company. She makes decisions that affect more than 7,600 workers in the Rochester area. And she gets paid a handsome sum to do all that.

The chief executive officer of Xerox Corp. made $14.6 million in 2007, according to a Democrat and Chronicle analysis of executive compensation at publicly traded companies with operations in the area.

Compensation includes not only cash in the form of salary and bonuses but also the value of perks and the estimated value of stock options.

Mulcahy was the most highly compensated CEO among those whose companies either have their headquarters in the Rochester area or have large work forces here.

But some other CEOs, of companies based elsewhere in the country and with relatively small Rochester-area staffs, did even better. For example, Exxon Mobil Corp. CEO Rex W. Tillerson had total compensation of $27.2 million in 2007, according to the analysis.

At Eastman Kodak Co., the area's largest publicly traded employer with 9,200 local workers, CEO Antonio M. Perez received $11.7 million in 2007.

In all, 51 of 72 executives in the Democrat and Chronicle analysis had compensation packages in excess of $1 million in 2007. The compensation data are available only for companies whose stock is sold to the public. The data come from documents filed annually with the U.S. Securities and Exchange Commission.

Typically, stock options or performance-based incentives make up much of a package. Sometimes, those awards wind up not having any value if the company's performance lags.

And for every Xerox, Kodak or Corning Inc., where the top executives all commanded at least $10 million in 2007, there is a Document Security Systems Inc. or First Niagara Financial Group or Performance Technologies Inc., at which the CEOs made less than $1 million.

Executive pay is a hot-button issue across the country because, studies have shown, the gap between what bosses make and what rank-and-file workers make is much larger than it used to be.

From the end of World War II through the 1970s, CEO pay grew gradually, according to a 2005 study by Harvard University and the Federal Reserve Board.

But between 1980 and 2000, the ratio of CEO-to-worker pay increased more than tenfold, from 42-to-1 to 525-to-1, according to a 2007 study by the liberal Institute for Policy Studies in Washington, D.C., and United for a Fair Economy, a Boston-based group that tracks CEO compensation.

Since 2000, the gap has narrowed slightly, the study found.

Consulting firm Mercer LLC's annual survey found that, on average, CEO compensation actually declined in 2007, with executives at the largest companies taking the biggest hits as financial performance also declined.

Unintended effect

New SEC requirements in the 1990s forcing companies to detail what they pay executives were intended to slow the growth rate of compensation by shining more light on the subject, said Eric Jackson, president of Florida-based activist investment firm Ironfire Capital. Instead, that openness might have helped push the growth. "The unintended effect was that it sort of became this constant escalating match of who is going to be paid the most," Jackson said.

Prompted by shareholders, a small number of companies this year granted those investors a say in executive pay packages. Insurer Aflac Inc. of Columbus, Ga., last month became the first major American company to give shareholders a vote on compensation.

Apple Inc. in Cupertino, Calif., and printer company Lexmark International Inc. in Lexington, Ky., gave investors an advisory say, though not a direct vote.

Similar proposals were shot down this year at a number of companies, such as Citigroup Inc. and Morgan Stanley, both New York City-based financial giants.

The House of Representatives in 2007 passed the Shareholder Vote on Executive Compensation Act, which would require that company stockholders get an advisory vote on executive compensation. Sens. Barack Obama, D-Ill., and Hillary Clinton, D-N.Y., have introduced similar legislation in the Senate in the past year.

But given what Xerox's peers pay their executives, Bonadonna said, "I don't think (Xerox) is out of whack. I don't have an issue with it. If they were attacking our wages, it'd be a different story."

Xerox retirees upset about the cuts the company has made in health care benefits get particularly fired up each spring when Xerox issues a proxy statement that details, among other things, what the company's top bosses made, said Dave Ferren, vice chairman of the Penfield-based Association of Retired Xerox Employees.

Executives are paid so much because they know a lot and do a lot, said James A. Brickley, Gleason Professor of Business Administration at the University of Rochester and an expert on corporate governance.

"I'm sure you can find some abuses in CEO pay," Brickley said. But running a large company is such a specialized job, he said, that handsome pay packages are necessary to attract and retain top talent.

Pointing to privately held companies that have hired CEOs from publicly traded companies, such as General Electric Co. executive David Calhoun leaving in 2006 to head Dutch market research firm VNU for a reported $100 million, Brickley said the private firms with hands-on ownership "are not going to go out and overpay a CEO's salary."

Compensation for heads of similar private and public manufacturing companies, for example, will usually be comparable, said Peter Oppermann, senior executive compensation consultant with Mercer LLC in New York City.

Oppermann said the increased public attention paid to executive compensation hasn't curbed the growth of pay packages but "has ensured that companies have paid for performance."

Brickley added: "There's a lot of focus and argument over CEO pay, but in reality that represents an incredibly small fraction of the overall value of these companies. ... So the pay is over the market rate. Is that as big an issue as not getting the right person in there?"

Set by boards

Executive pay can be a touchy subject for many companies. Major employers including Xerox and Constellation Brands Inc. declined to discuss the issue beyond pointing to their proxy statements.

Ultimately, executive compensation is set by companies' boards of directors. And typically those boards adopt packages that are designed to attract and motivate qualified executives and that are based on an assessment of corporate and individual performance. Companies also look to peers to help determine what they should be paying.

Many of those highly paid top executives are among a company's major shareholders. Patrick White and Peter Ettinger, CEO and president, respectively, of Document Security Systems, combined own more than 8 percent of the Rochester-based company.

At Perinton-based telecommunications company PAETEC Holding Corp., CEO Arunas Chesonis owns 8.3 million shares, or almost 6 percent of the total. And Kodak's Perez owns 1.2 million shares, though that amounts to less than 0.5 percent of the common stock, and has access to 1 million more through options.

Compared to companies around the globe, UR's Brickley said, American CEOs are more highly paid. But that can make for an apples-and-oranges comparison because "some (foreign) companies ... deal in less complex environments."

And as markets around the globe become more integrated, Brickley said, "the pay packages are tending to converge more."

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